Pepsi plans to add fizz to sales

PepsiCo India is planning to launch beverages and snacks priced below Rs 5. This is part of a drive to address the mass market looking for nutritional products. The new range, being developed in India, is expected to be launched on a pilot basis in select markets by next year. 

PepsiCo has set up a whole new value-foods division — it already has a food & beverage division — with a separate CEO. PepsiCo's beverages are currently priced at Rs 10 and above, while its snack foods cost between Rs 5 and Rs 20.

The latest move comes nearly eight years after PepsiCo and Coca-Cola fought a high-decibel, but bruising price war over soft drinks at Rs 5 for a 200 ml bottle. While Coca-Cola started that battle, both companies incurred huge losses and quietly exited in 2004. This time, PepsiCo is working on paring costs, as well as on alternative distribution and packaging before its products hit the market.  

Elaborating on his future plans, PepsiCo India Chairman Sanjeev Chadha told Business Standard: "We are working on beverages and snacks and will follow it up with food products that are under Rs 5. Our advantage is that we have a good distribution and R&D system."

"But the big issue of a nutritious product is that it has to be tasty, too. It has to be fun and lively. We are in the process of developing these products. And the challenge is to make them financially viable," said Chadha.

The low-cost brands should help PepsiCo meet its new target of tripling turnover by 2015, says Chadha. The company posted a turnover of Rs 8,000 crore from its Indian operations in 2009.

PepsiCo is already the third-largest FMCG firm in the country, behind Hindustan Unilever and ITC. The company is also planning to rejig its portfolio so that the share of carbonated drinks in turnover drops from two-thirds to half in three to five years.

Among the things PepsiCo is exploring to reduce costs is whether to push these new products through its existing network or leverage the wholesale route. "Our distribution system is push-based, where our trucks go to the retailer every day. A wholesale system is a pull system and, obviously, cheaper," said Chadha.

The other challenge in beverages is packaging. Since you cannot distribute the product in returnable bottles -- what the rivals did for the Rs 5 soft drinks -- an alternative could be to deliver it in powdered form. 

In the snack food space, there are other obstacles. "Yes, reducing cost is a challenge here, and that is dependent on key issues. What will the shelf life of the product? How crispy do you want to keep it? Also, the nature of the product," added Chadha.